Utility theory of entrepreneurship

What is the utility theory of entrepreneurship?

Utility theory was developed by moral philosophers in the early 1900s, including John Stuart Mill. The core concept is that individuals make (or should make) decisions that maximize utility. Utility includes value for one’s self and for others (society). Mill’s book Utilitarianism sets forth several principles and argues that happiness has utility, as does justice.

All sentient beings can experience utility, thus maximizing utility can take into account the interests of animals. But it brings forth a debate about how much utility to give to a deer versus a driver in the decision to construct an expensive nature fence and land bridge. Moreover, there might be “more sentient” beings, such as gifted humans, which some might want to give a higher utility in their calculations.

Another problem is that we might give little weight to things that affect many people but only a little bit. For example, if one may litter and affect many people (who will see the trash), but this has little negative impact on them by itself.

Douglas and Shepard did a study of entrepreneurs to see if they really think in ways that are compatible with utilitarian thinking. They emphasize the desire for independence as having utility in addition to income.

“Significant relationships were found between the utility expected from a job and the independence, risk, and income it offered. Similarly, the strength of intention to become self-employed was significantly related to the respondents’ tolerance for risk and their preference for independence.”

Sources:


Douglas, E. J. and Shepherd, D. A. (2002). Self-employment as a career choice: Attitudes, entrepreneurial intentions, and utility maximization. Entrepreneurship theory and practice, 26(3), 81-90.


Mill, John Stuart (1998). Crisp, Roger, ed. Utilitarianism. Oxford University Press.

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